Ahead of the ISM World conference coming up, I asked my network: What do you want me to cover in my presentations on e-auctions? I received a variety of answers and feedback, and the one that sparked me most came from a supplier. Dan Lunoe at Bamko responded: “I would love to know suggestions you have on how suppliers should behave or can act as better partners during e-auctions. How do we stand out, when it’s all online?” This is such a great question and is so important to consider as either a supplier or a procurement practitioner. Buyers want to use the e-auction tool thoughtfully and while strengthening our supplier relationships, and suppliers want to make sure their full value is considered in any bid scenario. Today’s article talks about how to approach an e-auction as a supplier, knowing you have significant value to offer your customer and wanting to stand out.
Do
So you’ve been invited to participate in an e-auction! How exciting! How terrifying! . . . How do you differentiate yourself and show your value to this potential/existing customer?
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- Understand the value proposition. The value proposition is always two-sided: the value the customer wants and the value the supplier brings. On the customer side, what do they consider the minimum requirements, without any options, bells or whistles? Then, which additional adders are they willing to pay for? The priority for each customer will vary by cost, quality, and speed/lead time. While a good scope of work should provide clues to the customer priority, make sure you know what the customer values most. On the supplier side, know what value you bring to this proposal. Do you have exceptional delivery/lead times? Do you provide superior quality products or excellent process controls? The most important piece of this as a supplier is: Are you trying to provide more than the customer needs and is willing to pay for? I constantly see suppliers trying to say that their offering provides excellent value, including all the options and extras. Meanwhile, the buyer is saying, “We don’t need that and don’t want to pay for it.” I see this value disconnection happen most often in software packages and similar bids. Can you change your offering to be more competitive in the e-auction by right-sizing your proposal to the scope of work and optioning out the rest?
- Ensure the auction reflects the value proposition. Now that you understand what the customer values and how your offer meets that value, is that value represented in the e-auction? If you can see that lead time is extremely important to the customer and there is nothing in the e-auction that notes lead time, it is ok to ask how lead time differences are accounted for in the auction. It’s possible the customer has a bid transformation in the background to account for different lead times, but it’s worth asking to make sure. If the customer is an existing customer of yours and you know you are doing more than the scope of work outlines, ask about those extra activities. Perhaps you’re tracking shipments as they come in or providing additional training. Ask how those activities are represented and if the customer still expects an awarded supplier to do those activities. It’s possible they are willing to let go of those extra services in exchange for lower costs, or that they simply forgot to include those things in the scope of work. Quote accordingly, or make sure the scope is changed for all suppliers to reflect the customer’s reality.
- Know your bottom-line number(s) before the event. Either have the decision-maker(s) in the room during the e-auction or the participating representative understand their limits ahead of the e-auction. A colleague of mine always tells the story that in the peak of e-auctions in the early 2000s, CEO Michael Dell used to personally participate in e-auctions for laptops. While there are many reasons a CEO participating may be impractical, be thoughtful about who has the authority to authorize the sale and how important it is to your company to win this business. If the e-auction ceiling is reasonable for your business (either because it came from an RFP or is simply a reasonable number), please do your buyer the courtesy of at least entering one starting bid into the e-auction. It really wreaks havoc when suppliers won’t enter an initial bid, even if that’s simply confirming their RFP/tender bid. It’s ok if you enter that first number and never improve your bid during the e-auction, it does not reflect poorly on your business and instead indicates you opened with your best possible bid.
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- Treat an e-auction like a quick, clean negotiation. An e-auction is really just a faster and less expensive version of an in-person negotiation. No one has to travel, no one has to be out of the office for days or a week, and it’s faster than a video conference call negotiation (or a series of them!). An e-auction is also more fair than an in-person negotiation, where I always worry about bias (against peoples’ physical appearance, accents, mannerisms, or even job title). While an in-person negotiation feels like relationship-building, true relationships and partnerships are built in an RFP ahead of e-auction, in the delivery of the goods or services over time, and even in the contract negotiation. The bid negotiation phase is a small piece of the whole relationship. An e-auction also provides some things an in-person negotiation seldom does: speed, market information, and clarity of work. An e-auction brings speed because at the end of an e-auction, suppliers know how competitive their bid is. An e-auction provides market information because it at least provides suppliers their bid rank (English/Dynamic) or the price at which the work was awarded (Dutch/Japanese). The e-auction provides clarity of work because awarding based on e-auction always requires the customer to be clearer about what they need and how they need it.
Don’t
The last thing any supplier wants is to make a bad impression on a customer. So let’s discuss the things I’ve seen during e-auctions that tend to leave buyers and customers with a poor opinion of suppliers.
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- Don’t be late. This advice seems fairly standard, but I cannot tell you how many times I’ve seen suppliers join e-auctions 1-2 minutes after the e-auction started. On the buyer side, likely several people are making phone calls, sending emails, and messaging the supplier because the buyer is concerned there is a technical issue, connection problems, or even software difficulty. Suppliers are late if they join less than 10 minutes before the e-auction opens. This is true no matter what platform the e-auction is on. Please save your customer time, effort, and worry by logging in before the e-auction starts. This also gives you time to troubleshoot in case you are having trouble with your login. If the timing of the e-auction is simply terrible for the participating representative, it’s ok to ask for a different time/day. I’ve seen e-auction teams move auction times due to vacations, different time zones, or any number of reasons. While they are the customer and sales teams are always trying to accommodate customers, it’s ok to ask for a schedule change when needed. The worst-case scenario is the customer says they cannot move the e-auction time.
- Don’t skip the practice auction/training. If your customer has a practice auction or e-auction training, it’s extremely helpful to join those. They likely won’t take very much time and are a safe space for you to explore the software platform. I always advise suppliers to try to do strange things in the practice auction: try increasing your bid, try entering a dramatic decrease, try having multiple people in your company bid against one another (if you have multiple people invited) and see if the system allows you to bid against each other internally. A good software platform will forbid or will send alerts for “strange” bids, and it’s helpful to know what the software does and does not allow or what the alerts look like. If your customer is not offering a practice auction or training and you’ve never used the system before, consider asking for a practice auction if time allows. A practice should be a non-binding duplicate of the “real” auction, clearly labeled as Practice. I actually do NOT recommend entering your real intended bids in the practice auction, because it can give away your auction strategy. Most supplier questions (whether the number of bidders is visible, how much they have to improve each bid, whether they can bid above the ceiling) tend to be answered with a practice auction.
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- Don’t request a ceiling increase. Regardless of how the customer set the ceiling/start price, I promise they were thoughtful in doing so. It’s very likely that the ceiling is set based on a budget or market research in the category. If you cannot meet the ceiling, it’s ok to submit a bid above the ceiling via message. I’ve seen scenarios where none of the suppliers could meet the ceiling and the buyer had to decide whether they were cancelling the project entirely or raising their bid ceiling. If you submitted an RFP and now that RFP is going to auction, the customer might set a ceiling for all bidders at or a little below the lowest RFP bid (adding input from the budget and market research). This gives you information on where the market is and lets you decide if you’re willing to come down to meet that ceiling, similar to an old-fashioned “Can you sharpen your pencil?” phone call. If you can improve your price from your RFP but cannot meet the ceiling, you can submit a lower bid using system messaging. I have seen all scenarios: some situations where the best “revised” bid was awarded because no suppliers could meet the ceiling, some where the ceiling was raised and the auction re-run, and some where the project was scrapped entirely or reworked with a different scope. I highly recommend you be honest with the customer about where you can bid, and that you don’t simply walk away because the bid ceiling is too low.
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- Don’t try to get the e-auction removed. I see this from suppliers constantly. They see an invite for an e-auction and immediately go on the offensive, telling the buyer what a horrible tool e-auctions are, how e-auctions destroy supplier relationships, and how suppliers (or themselves) will refuse to bid at all if an e-auction is involved. This always indicates three things to me:
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- A supplier who doesn’t understand their customer. The customer has chosen this negotiation tool for a reason, and I guarantee there was a lot of internal discussion and building buy-in before the e-auction was chosen as the right tool for this category. Instead of asking “How can we fight this?” I’d love to see suppliers ask, “What changed in my customer’s business that meant this was the tool they’re now choosing?” I never see procurement teams wake up one day and say, “Let’s use e-auctions today!” Instead they have a big change in their customer base, a change in leadership, or some other thing driving this approach. Understanding the change will always provide a competitive advantage to a supplier looking to gain a customer.
- A supplier who doesn’t understand or won’t fight for the value proposition. If your concern with an e-auction is that your value won’t be well-captured, I recommend going back to the first two bullet points under “Do” in this article. It’s true that in the early 2000s, e-auctions often became a “race to the bottom.” But modern e-auctions aren’t the quick-and-dirty unsophisticated approach of the past. Even simpler tools still include options that allow for more value capture. More importantly, the people running e-auctions are better at running them! Procurement practitioners have stopped seeing auctions as a hammer and have started to see them as a chainsaw – a sophisticated tool to be treated carefully in order to harness its power. Instead of trying to “get rid of” an e-auction, instead make sure it’s run fairly and well.
- A lack of trust between supplier and customer. When I’m helping clients build e-auction programs and ask reluctant suppliers about their barriers to e-auctions, it often comes down to trust. The suppliers ultimately don’t trust their customer to run a fair, transparent, and clean auction that considers the true value of the good or service. Sometimes I can help build that trust by answering questions and helping the buyer make thoughtful choices in their e-auction setup to consider the total cost of ownership. That is always my goal. But a very few suppliers have simply decided they have enough business without competing for it and refuse to participate in any auctions of any sort. Personally, I view that as an opportunity for their competitors to show buyers what supplier partnership actually looks like.
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As a supplier, e-auctions can definitely be scary and have a poor reputation. But they’re a great tool when used well, with benefits for both supplier and buyer. In summary:
Do
Understand the value proposition – both sides
Ensure the auction reflects the value proposition
Know your bottom-line number(s) before the event
Treat an e-auction like a quick, clean negotiation
Don’t
Be late
Participate without enough training/practice events
Request a ceiling increase
Try to get the e-auction removed, instead get it modified to include full value
If you’ve been invited to participate in an e-auction you’re worried doesn’t include the full value proposition, let’s chat. If you’d like to get these articles weekly straight to your inbox and never miss one, sign up for my newsletter.
My book, Transform Procurement: The Value of E-auctions is available in ebook, paperback and even hardcover format: https://www.amazon.com/dp/B0F79T6F25
My chapter in the powerful anthology Femme Led: Hard-Learned Lessons from Women in Leadership is now available in ebook and paperback format: https://a.co/d/0bOzma8F
